Market Review
Global equities made strong gains in November, led by the US, where the S&P500 reached a new record high. This was driven by the decisive outcome of the US election which saw Republicans take control of the White House and both houses of congress, raising hopes of pro-growth policies.
A stronger US dollar weighed on non-US stocks, particularly emerging markets (EMs), which was the weakest region. Markets were also subdued in Europe, Japan and China, upon fears that the new US administration could impose higher tariffs that would impact their global exporters’ earnings growth.
Shares of lower-quality firms, which tend to benefit from stimulatory policy and lower regulation, outperformed those of higher-quality businesses. Quality refers to factors such as higher profits, lower volatility, stronger balance sheets and faster earnings growth. During November, the lowest 20% of stocks in the global market ranked by quality outperformed the top 20% by over 3.0%.
The strongest performing sectors during November were consumer discretionary, financials and information technology. Financials outperformed upon expectations of banking deregulation in the US after the new administration takes office. Meanwhile, materials, health care and utilities underperformed during the month. Health care underperformed following President-elect Trump’s nomination of vaccine-sceptic Robert F. Kennedy Jr. as US Secretary of Health and Human Services.
Portfolio Commentary
The Fund is focussed on identifying great companies through bottom-up analysis and continues to find exciting opportunities in health care, communications services and industrials, in which it maintains overweight positions.
Strong stock performance in consumer discretionary and communications services, and an underweight position in materials boosted relative returns in November. This was offset by an overweight position in health care, an underweight in financials and weaker stock performance in both sectors.
Throughout much of this year, semiconductor stocks strongly outperformed software stocks, which languished. This was driven by strong demand for the most advanced chips that power the large language models which support the development of artificial intelligence (AI) applications.
The wide discount at which the market values the software businesses which have been developing the AI applications that promise to grow labour productivity and hence corporate earnings, appears unsustainable. Harding Loevner believes that eventually businesses must succeed in monetising AI applications to sustain the massive chip and infrastructure investment.
Therefore, the Fund’s exposure to businesses along the semiconductor value chain was reduced and the overweight exposure to software and services increased. In November, semiconductor stocks (other than NVIDIA) underperformed, while software stocks soared upon signs that AI applications are now delivering revenue growth. US-based enterprise software company ServiceNow which focusses on business-process automation reported that ‘Now Assist’ is its fastest-growing product ever. It also announced a software tool to integrate external data into the company’s AI models.
Japan-based personal electronics and entertainment giant Sony outperformed upon strong revenue and earnings growth in the September quarter. This was boosted by the shift to subscriptions in its game division and strength in its image-sensor business.
Netherlands-based payments processing business Adyen underperformed in November upon weakness in the broader European stock market. Investor sentiment was also impacted by the company’s lower-than-expected growth in transaction volumes. Harding Loevner remains optimistic about its business pipeline and growth prospects for next year, and the stock began to recover at the end of the month.
The Fund’s underweight exposure to the underperforming emerging markets supported relative returns in the wake of the US election. However, weakness in European stocks – in which the Fund maintains an overweight position – detracted from relative returns in November.
The Fund did not establish any new positions or exit any existing ones in November.
Portfolio Manager
Portfolio Manager
Portfolio Manager
An International Fund targeting superior risk-adjusted returns through investing in high-quality and durable growing companies at reasonable prices.
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The Pengana Harding Loevner International Fund invests in high-quality, growing companies identified through fundamental research with a long-term, global perspective.
Pengana has appointed Harding Loevner to managed the Fund. Harding Loevner is a New Jersey-based global equity fund manager formed in 1989 with over US$86billion in Assets under Management.
Harding Loevner’ analysts search the world for companies that meet their high quality and durable growth criteria, conduct fundamental research, then value and rate their stocks to make them available to PMs for investment.
1. Harding Loevner was appointed fund manager as of 10 May 2021. June 2021 represents the first full month of Harding Loevner managing the Fund.
2. Class B Inception date 1 July 2015. Figures shown are calculated from the continuous performance of both the current and previous strategies. For performance see row labelled Fund (APIR PCL0026AU) in the table above which is the continuous performance of both the current and previous (shaded) strategies.
3. Harding Loevner Global Equity Strategy inception 1 Dec 1989
4. Prior to June 2021, the Harding Loevner Global Equity Strategy performance (labelled ‘Current Strategy (Partial Simulation)’ and shown in the shaded area) includes the strategy performance simulated by Pengana from the monthly gross returns of the Harding Loevner Global Equity strategy. This simulation was done by: 1) the conversion of US-denominated gross returns to AUD, 2) applying the fee structure of Class B. From June 2021 the strategy performance is the performance of the Pengana Harding Loevner International Fund Class B.
5. MSCI All Country World Total Return Index in AUD.
6. Performance for periods greater than 12 months are annualised. Net performance figures are shown after all fees and expenses and assume reinvestment of distributions. No allowance has been made for buy/sell spreads. Please refer to the PDS for information regarding risks. Past performance is not a reliable indicator of future performance, the value of investments can go up and down.
7. The Harding Loevner Global Equity Strategy performance (shown in the shaded area in the chart, and in the performance table as row labeled ‘Harding Loevner Global Equity Strategy) has been simulated by Pengana from the monthly gross returns of the Harding Loevner Global Equity strategy. This simulation was done by: 1) the conversion of US-denominated gross returns to AUD, 2) applying the fee structure of the stated class. Strategy Inception 30 November 1989.
8. Annualised standard deviation since inception.
9. Relative to MSCI All Country World Total Return Index in AUD
* For further information regarding fees please see the PDS available on our website.
